Poland should choose the direction of steel industry decarbonization – Instrat

Poland needs a strategic decision on the direction of decarbonization of the country’s steel industry, and delaying it will increase the trade gap and lead to uncontrolled transformation. This is stated in a new report by Instrat, which GMK Center has reviewed.

According to the analysts, Polish industry, including the steel industry, is facing the challenge of decarbonization and maintaining its competitive position. Domestic steel producers are under growing pressure from non-European competitors. In addition, the free allocation of CO2 emission allowances under the EU ETS will be gradually phased out in 2026 and CBAM will be finally implemented. At the same time, energy prices in Poland are likely to remain higher than in the rest of Europe for a long time.

Instrat reminds that new investments in green steel mills are being announced across Europe, with production based on direct reduction of iron using an electric arc furnace and hydrogen as a reducing agent. In the future, their products will become more competitive compared to steel produced using traditional coal technologies.

All these factors have a negative impact on the situation of the Polish steel industry. Instrat analysts note that no decisions have been made for the sector on the path to decarbonization.

According to the study, the Polish government and producers are facing a strategic choice with several options.

• Keeping the existing primary steel plant in Dambrowa Górnicza using the BF-BOF route, equipping the plant with carbon capture technology,
• building a new green steel plant (DRI-EAF + hydrogen),
• focus on producing only steel melted from scrap (EAF) and rely on imports of primary steel.

“Every major industrial economy in Europe has already chosen to deeply decarbonize steel production. Further years of delay in making this decision in Poland will only widen the trade gap, leading to an uncontrolled, “wild” transformation of the steel sector,” the study says.

The Polish economy needs a strategic decision on the direction of transition for the domestic steel market and appropriate attention from the government. It needs regulatory and financial support, as well as investment infrastructure to support low- or near-zero-emission steel production.

The country also needs large amounts of renewable energy and low electricity prices to meet the strong demand for all low-carbon steel production technologies.

According to Instrat, from 2012 to 2021, steel production in Poland remained at 8-10 million tons, in 2022 these volumes fell to 7.5 million tons, and in 2023 – to 6.5 million tons. The reasons for the decline in steel production included the closure of ArcelorMittal’s integrated steel plant in Krakow in 2020 due to the recession caused by the coronavirus pandemic, rising CO2 prices since 2020, and then the energy crisis of 2022-2023 and a sharp rise in electricity prices.

At the same time, steel production in Poland does not meet domestic demand. Last year, for example, the country consumed almost 5.5 million tons more steel products than it produced, while in 2012 the gap was still 2 million tons. In 2023, steel imports exceeded exports by 6.5 million tons, the highest import balance among EU countries.

High electricity prices are increasingly affecting the competitiveness of Poland’s industry, which generates about 1/5 of the national GDP. This sector is very energy-intensive compared to other EU countries. High electricity prices are a problem for industries such as chemicals, metals, mining, and fuel and energy.